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Simple IRA Forms

Simple IRA (Savings Incentive Match Plan for Employees)

A Savings Incentive Match Plan for Employees (SIMPLE IRA) is a retirement plan that may be established by employers, including self-employed individuals. The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan.

Employees can exclude the entire contribution from current income and the employer is allowed a tax deduction for all plan contributions.

The employee is immediately vested, meaning any money contributed to a SIMPLE IRA belongs to the employee. If they leave the company for any reason, all retirement contributions go with the employee.

SIMPLE IRA plans are cost-effective and easy to establish and maintain.

Eligibility

Any small business that employs no more than 100 employees (including self-employed individuals who received income from the employer), have earned at least $5,000 in compensation in the previous years, and can expect to earn at least $5,000 during the current year can establish a SIMPLE IRA plan, provided the business does not concurrently maintain any other employer-sponsored plan.

Tax Features

Contribution Details

Employers can elect to either match the employee’s salary reduction contributions dollar-for-dollar up to 3% of pay or to pay a 2% non-elective contribution for each eligible employee regardless of whether the employee contributes to their SIMPLE IRA. Employers can switch between these options each year provided certain requirements are met.

Employees can elect to contribute up to 100% of compensation up to a maximum of $12,500 for 2018 and $13,000 for 2019 through salary reduction. In addition, participants age 50 and older may be able to increase this maximum to $15,500 for 2018 and $16,000 for 2019.

All employee contributions must be made within 30 days following the month in which the amounts would have be paid to the employee. Employer matching and non-matching contributions must be made by the company’s federal tax return due date, including extensions.

Investment Minimums

The minimum investment to open a SIMPLE IRA at Davis is $1,000.

Making Distributions

Distributions are taxed as ordinary income in the year received. Premature distributions, where the participant has not reached the age of 59 ½, are subject to a 10% early withdrawal penalty. The 10% early withdrawal penalty may be waived in certain situations. The following examples are exceptions to the 10% early withdrawal penalty but are not limited to:

Distributions due to disability

Distributions for first time homebuyer up to a $10,000 lifetime limit

The early withdrawal penalty is increased to 25% if funds are withdrawn within 2 years of beginning participation in the SIMPLE IRA.

Required Minimum Distributions

Assets can not be kept in a SIMPLE IRA indefinitely. The assets that need to be withdrawn each year are called Required Minimum Distributions (RMD). An individual must begin removing money from the SIMPLE IRA account in the calendar year they reach age 70 ½. Failing to take the minimum distribution will result in a 50% excise tax on the amount that should have been withdrawn. The RMD will still need to be withdrawn and income taxes paid on the distribution.